Employers with 50 or fewer employees have wrestled with rising health care costs and the Affordable Care Act (ACA) reforms for several years. While small employers recognize that health insurance is a critical benefit to attract and retain a workforce that builds a successful business, many have opted to forgo offering benefits altogether due to affordability and administrative burdens.
On June 19, 2018, the Department of Labor (DOL), after much debate, finalized a new rule that small businesses have been waiting for — the ability to again purchase health insurance in a more effective way, as part of an Association Health Plan (AHP).
These arrangements can pave the way for access to more affordable health insurance. In addition, with AHPs, small employers can avoid certain ACA reforms that apply to the small group market. According to the DOL, this will also provide small employers with more affordable health insurance coverage options.
“Small employers joining together to purchase health insurance is not a new concept to the industry. Under current restrictive regulation, however, these types of plans are not considered a single ERISA (Employee Retirement Income Security Act) plan,” says Ron Smuch, insurance & benefits analyst at JRG Advisors. “Each employer is separately responsible for compliance requirements relating to group health plans to include HIPPA (Health Insurance Portability and Accountability Act of 1996), COBRA (Consolidated Omnibus Budget Reconciliation Act) and the ACA. Furthermore, under current regulations participating employers with 50 or fewer employees are required to comply with additional requirements under the ACA.
“Most notable are the requirements to offer ‘essential health benefits’ and to comply with restrictive community rating rules when calculating premiums. The combination of additional complex administrative burden and continued increased premium costs have made today’s fully insured association health plan less attractive for small employers,” he says.
Smart Business spoke with Smuch about how AHPs could work for your organization.
Why is the new AHP ruling a win-win?
The passage of the DOL’s new association health plan ruling is a win-win and without a doubt will be a more advantageous option for small employers, their employees and sponsoring associations going forward.
For employees, AHPs will be an attractive, more cost-effective alternative to ACA plans. Small employers will now have the ability to join together and take advantage of economies of scale to reduce administrative costs while also offering coverage that is more affordable to employees. Furthermore, the employer will be exempt from some of the burdensome ACA requirements. For the sponsoring associations, offering health plans will prove to be a valuable tool for attracting and retaining employer members.
When does the new rule take effect?
The final rule includes a ‘phased’ applicability date.
- Fully insured plans were allowed to begin operating under the new rule on Sept. 1, 2018.
- Existing self-insured AHPs can begin operating under the new rule on Jan. 1, 2019.
- New self-insured AHPs can begin on April 1, 2019.
What should small employers consider?
Small employers should exercise a certain level of caution when considering an AHP. While this new ruling and benefits arrangement may yield reduced health insurance premium costs, some AHPs may actually cover fewer benefits. Most AHPs will not be subject to the ACA’s requirement for group plans to include coverage for the 10 core ‘essential health benefits.’
Employers should carefully review the benefits design with an experienced professional to ensure the plan is adequate for their overall benefits strategy and workforce coverage needs.
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